-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NeIR1x51v1pDo353DwJLFka4UvtlcmD0NwJQ4vXYhR5iHyDGm5YHEwgvj05NJkVi PdCiCgm/FQFjYgGtGr/5Yg== 0000794170-98-000010.txt : 19980305 0000794170-98-000010.hdr.sgml : 19980305 ACCESSION NUMBER: 0000794170-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980304 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOLL BROTHERS INC CENTRAL INDEX KEY: 0000794170 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 232416878 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09186 FILM NUMBER: 98557393 BUSINESS ADDRESS: STREET 1: 3103 PHILMONT AVE CITY: HUNTINGDON VALLEY STATE: PA ZIP: 19006 BUSINESS PHONE: 2159388000 MAIL ADDRESS: STREET 1: 3103 PHILMONT AVENUE CITY: HUNTINGDON VALLEY STATE: PA ZIP: 19006 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED January 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission file number 1-9186 TOLL BROTHERS, INC. (Exact name of registrant as specified in its charter) Delaware 23-2416878 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3103 Philmont Avenue, Huntingdon Valley, Pennsylvania 19006 (Address of principal executive offices) (Zip Code) (215) 938-8000 (Registrant's telephone number, including area code) Not applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $.01 par value: 36,957,064 shares as of February 24, 1998 TOLL BROTHERS, INC. AND SUBSIDIARIES INDEX Page No. PART I. Financial Information ITEM 1. Financial Statements Condensed Consolidated Balance Sheets 1 January 31, 1998 (Unaudited) and October 31, 1997 Condensed Consolidated Statements of Income (Unaudited) 2 Three Months Ended January 31, 1998 and 1997 Condensed Consolidated Statements of Cash Flows 3 (Unaudited) Three Months Ended January 31, 1998 and 1997 Notes to Condensed Consolidated Financial Statements 4 (Unaudited) ITEM 2. Management's Discussion and Analysis of 6 Financial Condition and Results of Operations PART II. Other Information 8 SIGNATURES 9 STATEMENT OF FORWARD-LOOKING INFORMATION Certain information included herein and in other Company statements, reports and S.E.C. filings is forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements concerning anticipated operating results, financial resources, growth and expansion. Such forward-looking information involves important risks and uncertainties that could significantly affect actual results and cause them to differ materially from expectations expressed herein and in other Company statements, reports and S.E.C. filings. These risks and uncertainties include local, regional and national economic conditions, the effects of governmental regulation, the competitive environment in which the Company operates, fluctuations in interest rates, changes in home prices, the availability and cost of land for future growth, the availability of capital, the availability and cost of labor and materials, and weather conditions. CONSOLIDATED CONDENSED BALANCE SHEETS (Amounts in thousands)
January 31, October 31, 1998 1997 (unaudited) ASSETS Cash and cash equivalents $94,312 $147,575 Residential inventories 979,623 921,595 Property, construction and office equipment 14,871 15,074 Receivables, prepaid expenses and other assets 34,340 31,793 Mortgage notes receivable 2,452 2,589 $1,125,598 $1,118,626 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Loans payable $184,292 $189,579 Subordinated notes 269,234 319,924 Customer deposits on sales contracts 56,466 52,698 Accounts payable 42,653 48,600 Accrued expenses 73,771 75,237 Collateralized mortgage obligations payable 2,457 2,577 Income taxes payable 38,000 44,759 Total liabilities 666,873 733,374 Stockholders' equity: Preferred stock Common stock 369 343 Additional paid-in capital 105,406 48,514 Retained earnings 352,950 336,395 Total stockholders' equity 458,725 385,252 $1,125,598 $1,118,626
See accompanying notes CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands, except per share data) (Unaudited)
Three months ended January 31 1998 1997 Revenues: Housing sales $243,234 $201,437 Interest and other 1,481 1,083 244,715 202,520 Costs and expenses: Land and housing construction 188,850 155,381 Selling, general and administrative 23,518 18,820 Interest 7,031 6,137 219,399 180,338 Income before income taxes and extraordinary loss 25,316 22,182 Income taxes 8,761 8,085 Income before extraordinary loss $ 16,555 $ 14,097 Extraordinary loss from extinguishment of debt, net of income taxes of $1,659 2,772 Net income $ 16,555 $ 11,325 Earnings per share Basic* Income before extraordinary loss $ .47 $ .42 Extraordinary loss from extinguishment of debt .08 Net income $ .47 $ .33 Diluted Income before extraordinary loss $ .44 $ .39 Extraordinary loss from extinguishment of debt .07 Net income $ .44 $ .32 Weighted average number of shares Basic 34,983 33,945 Diluted 38,127 37,027 *Due to rounding, amounts may not add.
See accompanying notes CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands)
Three months ended January 31 1998 1997 Cash flows from operating activities: Net income $16,555 $11,325 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,051 866 Amortization of discount on loans 585 62 Deferred taxes 3,066 624 Extraordinary loss from extinguishment of debt 4,431 Changes in operating assets and liabilities Increase in residential inventories (61,032) (32,192) Increase in receivables, prepaid expenses and other assets (3,772) (328) Increase (decrease) in customer deposits on sales contracts 3,768 (383) Decrease in accounts payable, accrued expenses and other liabilities (2,648) (7,740) Decrease in current income taxes payable (9,303) (6,942) Net cash used in operating activities (51,730) (30,277) Cash flows from investing activities: Purchase of property, construction and office equipment, net (682) (2,179) Principal repayments of mortgage notes receivable 137 127 Net cash used in investing activities (545) (2,052) Cash flows from financing activities: Principal payments of loans and subordinated notes (3,034) (3,470) Net proceeds from issuance of senior subordinated notes 97,500 Principal payments of collateralized mortgage obligations (120) (121) Proceeds from stock options exercised and employee stock plan purchases 2,166 1,238 Net cash (used in) provided by financing activities (988) 95,147 (Decrease) increase in cash and cash equivalents (53,263) 62,818 Cash and cash equivalents, beginning of period 147,575 22,891 Cash and cash equivalents, end of period $94,312 $85,709 Supplemental disclosures of cash flow information: Interest paid, net of capitalized amount $ 805 $ 428 Income taxes paid $14,998 $12,501 Supplemental disclosures of non-cash financing activities: Cost of residential inventories acquired through seller financing $ 3,944 Income tax benefit relating to exercise of employee stock options $ 476 $ 243 Stock bonus awards $ 3,564 Conversion of subordinated debt $50,712 See accompanying notes
TOLL BROTHERS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for interim financial information. The October 31, 1997 balance sheet amounts and disclosures included herein have been derived from the October 31, 1997 audited financial statements of the Registrant. Since the accompanying condensed consolidated financial statements do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements, it is suggested that they be read in conjunction with the financial statements and notes thereto included in the Registrant's October 31, 1997 Annual Report to Stockholders. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, which are of a normal recurring nature, necessary to present fairly the Company's financial position as of January 31, 1998 and 1997, and the results of its operations and cash flows for each of the three months then ended. The results of operations for such interim period are not necessarily indicative of the results to be expected for the full year. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128,Earnings Per Share. Statement 128 replaced the previously reported primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share exludes any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the Statement 128 requirements. 2. Residential inventories Residential inventories consisted of the following (amounts in thousands):
January 31, October 31, 1998 1997 Land and land development costs $212,042 $234,855 Construction in progress 662,743 590,295 Sample homes 48,023 47,920 Land deposits and costs of future development 34,924 28,314 Deferred marketing and financing costs 21,891 20,211 $979,623 $921,595
Construction in progress includes the cost of homes under construction, land and land development costs and carrying costs of lots that have been substantially improved. The Company capitalizes certain interest costs to inventories during the development and construction period. Capitalized interest is charged to interest expense when the related inventories are closed. Interest incurred, capitalized and expensed is summarized as follows (amounts in thousands):
Three months ended January 31 1998 1997 Interest capitalized, beginning of period $51,687 $46,191 Interest incurred 10,353 9,225 Interest expensed (7,031) (6,137) Write off to cost of sales and other ( 18) (81) Interest capitalized, end of period $54,991 $49,198
3. Extinguishment of debt In January 1997, the Company called for redemption on March 15, 1997 of all of its outstanding 10 1/2% Senior Subordinated Notes due 2002 at 103% of principal amount plus accrued interest. The redemption resulted in an extraordinary loss of $2,772,000, net of $1,659,000 of income taxes. The loss represents the redemption premium and a write-off of unamortized deferred issuance costs. The redemption and related refinancing will result in the reduction of the Company's interest costs by approximately $2 million annually. In December 1997, the Company called for redemption on January 14, 1998 of all of its outstanding 4 3/4% Convertible Senior Subordinated Notes due 2004 at 102.969% of principal amount plus accrued interest. Prior to the redemption date, $50.8 million of bonds were converted into common stock of the Company. The Company redeemed $165,000 of bonds. 4. Subsequent Event In February 1998, the Company entered into a new five year, $355 million bank credit facility. In connection therewith, the Company repaid $62 million of fixed rate long-term bank loans. The Company will recognize an extraordinary charge in the second quarter of 1998 of approximately $1.1 million, net of $600,000 of income taxes, related to the retirement of its previous revolving credit agreement and prepayment of the term loans. PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain income statement items related to the Company's operations as percentages of total revenues: Three months ended January 31 1998 1997 Revenues 100.0% 100.0% Costs and expenses: Land and housing construction 77.2 76.7 Selling, general and administrative 9.6 9.3 Interest 2.9 3.0 Total costs and expenses 89.7 89.0 Income before taxes 10.3% 11.0%
Revenues for the three months ended January 31, 1998 amounted to $244.7 million compared to $202.5 million reported in the first quarter of fiscal 1997. This increase was due primarily to an increase in the number of homes delivered in the first quarter of 1998 over the first quarter of 1997 and an increase in the average delivered price per home. The higher unit deliveries in the 1998 first quarter were due primarily to the higher backlog of homes at October 31, 1997 as compared to October 31, 1996, which was the result of the greater number of homes sold in fiscal 1997 over fiscal 1996 and the Company's expansion into Las Vegas, Nevada. The increase in the average selling price per home delivered in the first quarter of 1998 was the result of the shift in the location of homes delivered to more expensive areas, changes in product mix to larger homes and increases in selling prices in its existing markets. The increase in the average selling price per home was partially offset by the Company's deliveries of smaller, less expensive homes in the Las Vegas market. As of January 31, 1998, the backlog of homes under contract amounted to $665.1 million (1,634 homes), approximately 33% higher than the $498.3 million (1,259 homes) backlog as of January 31, 1997. The aggregate sales value of new contracts signed in the first quarter of fiscal 1998 amounted to $270.4 million (675 homes), an increase of approximately 56% over the $173.5 million (442 homes) signed in the first quarter of 1997. Land and housing construction costs as a percentage of revenues increased in the first quarter of 1998 as compared to 1997 due principally to the higher costs incurred in the Las Vegas market and in the Company's other newer markets (Arizona, California, Florida, Texas and North Carolina). These higher costs were partially offset by lower inventory writeoffs in 1998 ($75,000) as compared to 1997 ($1,020,000). Selling, general and administrative expenses ("SG&A") in the first quarter of 1998 increased as a percentage of revenues as compared to the first quarter of 1997. This increase was primarily attributable to the additional SG&A spending incurred by the Company in connection with its expansion into newer markets and the greater number of communities in which the Company was operating in the 1998 quarter compared to 1997. Interest expense is determined on a specific house-by-house basis and will vary depending on many factors including the period of time that the land under the home was owned, the length of time that the house was under construction and the interest rates and the amount of debt carried by the Company in proportion to the amount of its inventory during those periods. As a percentage of revenues, interest expense was lower in the first quarter of 1998 as compared to 1997. Income Taxes The Company's estimated combined state and federal tax rate before providing for the effect of permanent book-tax differences ("Base Rate") was 37% and 37.5% in the first quarter of 1998 and 1997, respectively. The decrease in the Base Rate was due to a decrease in the Company's estimated effective state tax rate. The primary differences between the Company's Base Rate and effective tax rate were tax free income in the first quarter of both periods of 1998 and 1997 and, in the first quarter of 1998, an adjustment due to the recomputation of the Company's deferred tax liability resulting from the change in the Company's estimated Base Rate. The Company expects the effective rate for the remainder of the year to increase and for the full 1998 fiscal year to be approximately 36.5%. Extraordinary loss from extinguishment of debt In January 1997, the Company called for redemption on March 15, 1997 of all of its outstanding 10 1/2% Senior Subordinated Notes due 2002 at 103% of principal amount plus accrued interest. The redemption resulted in an extraordinary loss of $2,772,000, net of $1,659,000 of income taxes. The loss represents the redemption premium and a write-off of unamortized deferred issuance costs. The redemption and related refinancing will result in the reduction of the Company's interest costs by approximately $2 million annually. CAPITAL RESOURCES AND LIQUIDITY Funding for the Company's residential development activities has been principally provided by cash flows from homebuilding operations, unsecured bank borrowings, and from the public debt and equity markets. In February 1998, the Company entered into a new a $355 million unsecured revolving credit facility with fifteen banks which extends through February 2003. As of February 27, 1998, the Company had $50 million of loans and approximately $17 million of letters of credit outstanding under the facility. The Company believes that it will be able to fund its activities through a combination of existing cash resources, operating cash flow and existing sources of credit. HOUSING DATA (Dollars in thousands)
New Contracts Closings Three Months Ended Contract Backlog Three Months Ended January 31 January 31 January 31 1998 1997 1998 1997 1998 1997 Sales value $270,420 $173,515 $665,097 $498,272 $243,234 $201,437 Homes 675 442 1,634 1,259 645 550
PART II. Other Information ITEM 1. Legal Proceedings - None. ITEM 2. Changes in Securities - None. ITEM 3. Defaults upon Senior Securities - None. ITEM 4. Submission of Matters to a Vote of Security Holders - None. ITEM 5. Other Information - None. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 11 - Statement Regarding Computation of Earnings Per Share Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TOLL BROTHERS, INC. (Registrant) Date: March 3, 1998 By: /s/ Joel H. Rassman Joel H. Rassman Senior Vice President, Treasurer and Chief Financial Officer Date: March 3, 1998 By: /s/ Joseph R. Sicree Joseph R. Sicree Vice President - Chief Accounting Officer (Principal Accounting Officer) EX-11 2 TOLL BROTHERS, INC. & SUBSIDIARIES EXHIBIT 11 STATEMENT: COMPUTATION OF EARNINGS PER SHARE
Three Months Ended January 31, 1998 1997 Income before extraordinary loss per income statement $ 16,555 $ 14,097 Addback: Interest on convertible debentures, net of income taxes 315 378 Income before extraordinary loss (diluted) $ 16,870 $ 14,475 Per share: Basic $ 0.47 $ 0.42 Diluted $ 0.44 $ 0.39 Weighted average shares outstanding(Basic shares) 34,983 33,945 Common stock equivalents - stock options 1,381 737 Shares issuable on conversion of subordinated debentures 1,763 2,345 TOTAL (Diluted shares) 38,127 37,027
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5 0000794170 TOLL BROTHERS, INC. 3-MOS OCT-31-1998 JAN-31-1998 94,312 0 0 0 979,623 0 34,659 19,788 1,125,598 0 269,234 369 0 0 458,356 1,125,598 243,234 244,715 188,850 212,368 0 0 7,031 25,316 8,761 16,555 0 0 0 16,555 0 .44
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